A report from the Federal Reserve said economic conditions remain weak across the nation but five of the 12 central bank districts reported that deterioration was slowing. At the same time, Treasury released a statement indicating that the budget deficit is expanding rapidly.
The budget deficit wasn’t just big ― it was a record for the month. The deficit for May soared to nearly $190 billion, almost $10 billion more than the consensus forecast and far above the May 2008 deficit of $165.9 billion.
The Treasury took in $117.241 billion in May and spent $306.892 billion, resulting in a deficit of $189.7 billion. Just eight months into the fiscal year, the government has already spent $991.9 billion more than it has received.
Meanwhile, the Federal Reserve’s Beige Book, an anecdotal summary of economic conditions across the nation, indicated that “economic conditions remained weak or deteriorated further” from mid-April through May.
Senior strategist Charmaine Buskas from TD Securities said the report contained no real surprises. “Of the major macro economic variables, there are few that suggest a turn around is imminent,” she said. “Therefore, we retain our view that the recovery in the U.S. will be a slow slog that begins in the second half of 2009.”
The report said residential real estate “remains weak,” although agents from several Federal Reserve districts ― New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas City, Dallas, and San Francisco ―reported an uptick in home sales.
Low interest rates, falling home prices, and tax credits for first-time buyers were all considered factors contributing to stabilization in those areas.
“Much of the sales increase was found in the lower-priced end of the market,” the Beige Book said. The report also noted that new home construction had stabilized at low levels in many districts and that excess inventories were being trimmed down in the Philadelphia, Richmond, Atlanta, Kansas City districts.
Earlier on Wednesday, the Mortgage Bankers Association reported the average 30-year mortgage rate had soared up for the second week in a row, which could hurt the housing market’s potential to recover.
The commercial real estate market continues to “weaken across all Districts,” the report said, noting that vacancy rates were on the rise, putting a deflationary pressure on rent.
Projects in Atlanta, Chicago, and St. Louis all reported new postponements and cancellations. “Eight Districts cited difficulty in obtaining financing as one of the primary reasons for delaying or stopping construction of new developments and for limiting sales of existing properties,” the Beige Book said.
Elsewhere in the Fed’s report, the labor market was said to be weak, credit conditions were called “stringent,” prices were characterized as flat or falling, and consumer activity was mixed.